Tuesday, January 4, 2011

As the economy recovers, don't expect employment to improve in the manner of past recoveries. Long term unemployment is here to stay for the US for a similar set of reasons that have made long term unemployment a permanent feature of the European economic landscape. Hiring people costs too much. That is it -- pure and simple.

If you offer an employee a salary of $ 35,000 per year and if $ 35,000 respresented your actual annual cost of the employee, there would be little or no unemployment in the US or in Europe. But, it doesn't work that way. Where to begin?

How about Social Security and Unemployment Compensation? Need we mention health care? How about mandated family leave and mandated paid sick leave (by many states). What about the right to sue your employer if another employee is guilty of .... you name it....racial or sexual discrimination, etc., etc. How does the threat of a multi million dollar lawsuit feel if you are a small business? Especially if the alleged violations of existing law are incidents between employees that are after hours and not on the job site. Employers are still liable for such things.

In essence a $ 35,000 employee now costs $ 60,000 or more if you factor in the liabilities and costs that various levels of government have mandated as part of the process. So, who needs employees at these prices? Hardly anyone.

In the long run, these costs are borne by employees, which goes a long way toward explaining the declining fortunes of middle class America. But, in the short run, these extra costs are impediments to hiring.

The economy will recover and outsourcing and capital equipment will be factors of choice for employers. Forget hiring real live people. They have been priced out of the market by big government.